CAPE TOWN – To the extent that South Africa and indeed, all South Africans, are embroiled in an uncomfortable converse about the price of refined petroleum products, with public demonstrations intended to result in an economic shutdown across the length and breadth of the Republic, an opportunity has presented itself in evaluating the construct of the petrol price, generally known as the Basic Fuel Price (BFP).
Out of it, a story is fast developing to which all our attention must be paid. So many people have access. Amongst these, there are three most prominent actors. First, are the original sellers of the product. Next in line are the subsidiaries of the overseas oil majors operating in South Africa. And bringing up the rear is the government of the people.
Each of these parties has got a fundamentally unchangeable role to play purportedly in execution of their obligations in the BFP social contract. Moving from the bottom of the value chain upwards, the role of the government, as the penultimate actor in the supply value chain, casually saunters into focus. Defined as a regulatory function, just before the most important player is introduced, the consumer, it is the arbiter between the suppliers and the buying market. Quite loathe to be seen as interfering in market dynamics, the government tends to do what all its brethren do, pretend to protect the consumer from uncompetitive practices.
What makes up a petrol price in South Africa?
The moniker is scarcely appropriate especially because petrol is not the only product regulated by law. Diesel is too, even though not at the pump. Yet as a phrase, it is deliberately sought to provide parameters for the inquiry. It is a comfortable medium of dropping a gauntlet. As a matter of fact, few of my compatriots would be able to make a contradistinction between gasoil and gasoline. And in the nativity of our own colloquialism, gas stations, in the same way we jestfully call traffic lights “robots”, are appropriately called “petrol stations”. And so petrol it is.
By these parameters therefore, the article panders towards enquiring what makes up the petrol price. And as governments tend to do elsewhere, regulation of the petrol price is no more than the pleasing of the powerful candidates in the universe of the lobbyists, be it labor, social or economical. So that in all fairness, the government has no instinct to regulate anything except that which is dictated to it by the most powerful. There is no doubt that in this heated debacle, the government walks into the debate with a vague stare, full of power and waiting to be to told what to do.
The second component is represented by the subsidiaries of the oil majors. So much of the BFP is dedicated to reimbursing the petroleum companies those components of their purchasing which ought to be catered for by the shipment differentials contained in their buying contracts. By reimbursing them, this is to ensure that these downstream vertically integrated petroleum companies do their business risk free. This is capitalism of an unfamiliar kind. This is tantamount to bribing these entities to stay and not threaten the government of South Africa to disinvest and leave these shores.
A cursory investigation of the structure of the BFP, reveals that a significant percentage thereof is allotted to the anointed ones. R5.81 to be exact. Not exactly. The price of the physical molecule is in there too. The citizenship for their part, do not expect the government to claim ignorance, but in all probability, it will. Either they will claim powerlessness and lack of options, or resort to the absurd. They are wont to claim that the distributive allocations in the BFP are religiously sacrosanct and are beyond the power of democracy to investigate. Besides, they are incapable of easy sloganeering like the rhyming of “expropriation without compensation”.
No such absolution must be credited to power and therefore should not be tolerated. To power is attributed knowledge, continuity and invincibility. Our government, in its broader definitional sense, should guard against misinformation if it is to take fact-based and credible decisions. Incidents as evidenced in the most publicised campaign for the reduction or complete elimination of the Road Accident Fund Levy can be avoided. That is too much ignorance to be vaunted in the public consciousness of a people already suffering from policy inequities. Even the editorial of a prominent business daily found the utility of such campaign rather apocryphal. In their own words on the 26th of July, “…calling for a R1 cut is wishful thinking at best and opportunism at worst”.
To be fair, the history of fuel pricing and its insidious dark art of tariff protections is long and unpleasant. From the PAR, to MPAR, to IBLC and now the most contentious, the BFP, one can learn the history of fear, of state weakness, of compromise, and above all of collusion. And therefore the issue of how we end up every first Wednesday of every month always edging closer to a precipice of social upheaval is a consequence of the wholesome structure of the BFP and not of the R1.95 of the RAF. An entire crisis has come to town, and in the parlance of the sages, should not be suffered to go to waste.
It is fair warning that this would not be an easy battle to fight. The public and its representative institutions are hopelessly unprepared. And from an unsure footing, the consumer embarks on the biggest war campaign after the fall of the apartheid government. Along the many epics in the history of this narrative, we have always moved from the assumption that the petroleum companies will always be foreign companies investing in South Africa. Dialectically therefore, when that assumption changes, so would the outcomes. What in this instance would be the case for the local company which has received a Manufacturing Licence, albeit with conditionalities? Would they also be feted with the same equanimity as if they are a subsidiary of a major oil company?
The role of import parity seems destined to linger just a little longer than we would wish. For, it is in the import psychology that our inability to determine with certainty our pricing model emanates. It is rather striking that these import parity measures are neither found in the US nor in Europe. Whilst the US has worked its way back to major producer status, it too like Europe, is a major importer. Europe, however, not unlike us, is a net importer. This begs the odd question as to what best practice is our fuel construct modeled. When considering how significant the price can be reduced and the constituent parts of the BFP structure, it is important to search with diligence any vestiges of tariff protection and the promotion of uncompetitive practices.
There are other less emotive issues yet equally important. And this is that if we were to reimburse a company for imports or their equivalent, how is the calculation made? Different companies import different volumes, it hardly is intelligible to reimburse all of them equally as if they imported equal volumes.
And what indeed in the imports should be reimbursed and why?
Why is an annual reimbursement not sufficient?
Somewhere in the buying contracts of the importers, is writ in fine print the rudiments of back to back arrangements between parent and subsidiary. It would not be unjust to evaluate the possibility of transfer pricing if we are to come to a fair estimation of the petrol price. In short, those kinds of hidden costs for the consumer which are unknown to the worldwide markets of comparative sizes should be eliminated with haste.
There is only one way out. Parliament must call for a hearing on the structure of the fuel price and how it can be made more transparent for the benefit of the public. The recommendations from the Competition Commission, Treasury, the Department of Energy, the SA Revenue Service and the SA Reserve Bank will be pivotal in finding a well-rounded resolution on such a complex issue. The parliamentarians stand a chance of being heroic, seeing not many opportunities of this ilk remain. And it may well be that tariff protection and price fuel distortions will finally meet their Cuito Cuanavalle.
Ambassador Bheki Gila is a Barrister at Law.
The views expressed here are not necessarily those of Independent Media.
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– BUSINESS REPORT